Stocks decline, bonds rally as trade fears build

Bloomberg

Investors dumped riskier assets as a trade dispute between the world’s two largest economies showed signs of deepening and accelerating. Stocks dropped, Treasuries rallied and the dollar climbed with the yen.
The S&P 500 sank the most in three weeks with industrial companies getting hit hardest after President Donald Trump threatened tariffs on another $200 billion of Chinese
goods, and the Asian nation pledged retaliation.
The gauge recovered from the worst of its losses in mid-morning trading as communications shares rose. Stocks also fell across Europe and Asia, where Chinese shares plunged after reopening following a holiday.
The Cboe Volatility Index rose to the highest since May, while government bonds in Europe rallied alongside US notes. Developing-nation stocks dropped the most since February.
Tough trade talk is nothing new for investors in 2018, but the perception that stress is ratcheting up between the US and China is taking a toll on markets.
The protectionist moves come at a time when many are already voicing concern that global growth could lose momentum as the US tightens monetary policy and Europe pulls back on stimulus.
“The degree of both rhetoric and substance behind the proposals that have gone back and forth recently is worrisome,” Mark Howard, a senior multi-asset specialist at BNP Paribas, said on Bloomberg TV. “This has caused a bit of a risk-off trade today, and it’s a cause of caution by major investors.”
The euro dropped after the latest dovish message from the European Central Bank, and the pound weakened as the UK prepared for another knife-edge Brexit vote on Wednesday.
The lurch towards protectionism rattled commodities and commodity-linked currencies, which retreated across the board. Oil fell as traders weighed OPEC’s discussions on a compromise over increasing output ahead of a meeting in Vienna this week.
Draghi, Reserve Bank of Australia Governor Philip Lowe, Bank of Japan Governor Haruhiko Kuroda, and Fed Chairman Jerome Powell join a panel on central bank policy in Sintra, Portugal, on Wednesday. Thailand, Philippines and Brazil central bank decisions due on Wednesday. Bank of England rate decision on Thursday. Also on Thursday: US jobless claims, New Zealand GDP, South Korea export data. The Organization of Petroleum Exporting Countries meets in Vienna on Friday.
The S&P 500 fell 0.8 percent in New York. The Stoxx Europe 600 Index declined 0.6 percent to the lowest level this month. Germany’s DAX Index dropped 1.2 percent to the lowest in almost three weeks. Hong Kong’s Hang Seng Index slipped 2.8 percent to the lowest since February. The MSCI Emerging Market Index sank 2.2 percent to the lowest since September.
The Bloomberg Dollar Spot Index rose 0.3 percent to the highest in 11 months.
The euro decreased 0.5 percent to $1.1565, the weakest in three weeks. The British pound declined 0.5 percent to $1.3174, the weakest since November. The Japanese yen jumped 0.7 percent to 109.82 per dollar. The Turkish lira sank 0.6 percent to 4.7348 per dollar, the weakest on record.
The yield on 10-year Treasuries fell three basis points to 2.88 percent, the lowest in almost three weeks. Germany’s 10-year yield declined two basis points to 0.37 percent, its sixth straight decline. Britain’s 10-year yield decreased four basis points to 1.28 percent.